Australasian Leisure Management November/December 2013 1

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20 Wet Wild West The opening of the new Wet’n’Wild Sydney waterpark

28 Enchanting Generations The Philippines’ Mario O. Mamon is IAAPA’s new Chairman

36 The Price is Right? Implementing revenue management in sport and entertainment

40 Serving the Community Are Council’s providing the right type of facility?

46 Choosing my Replacement How would you deal with management change?

50 Five Year Stretch Anytime Fitness’ five years in Australia

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58 Bumps and Bruises Injury rates in junior football codes

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The slow adoption of dynamic pricing is partly to do with technology. It’s quite possible to implement

dynamic pricing without specific pricing management software, and I would argue it is not generally appropriate to fully automate the pricing process.

With dynamic pricing, it is important to be able to monitor pricing opportunities and evaluate impact. This is why a system such as Revenue Management Application (developed with JCA, exclusively for the Tessitura customer relations management [CRM] system) enables marketers to undertake sophisticated analysis to inform long-term strategy, make day-to-day dynamic pricing decisions, and then quantify their impact.

Dynamic pricing is a pricing strategy where the provider of a service or commodity varies the price depending on the time and expected or observed demand.

The Price is Right?Dynamic pricing is becoming common in the sports and entertainment sectors in the USA, but organisations in Australasia and Europe have been slower to pick up on the opportunity.

Tim Baker explores some of the reasons why, and explains the key issues in implementing revenue management.

However, it’s not just about technology for another issue holding the sector back is the nature of the deals done between agents, promoters, and venues. The structure of these sometimes creates a disincentive for retailers to fully engage in dynamic pricing – the margin isn’t in it for them. As a result all parties lose out on income, while an opportunity is created for the secondary market to buy up and take advantage of under-priced inventory.

Overall, the biggest barrier is often management attitudes; a fear that dynamically adjusting prices will adversely affect sales. I think this is based on a number of misconceptions.

Firstly, that revenue management, yield management and dynamic pricing all mean the same thing. They don’t, and understanding the difference is important.

Secondly, people often think that “dynamic pricing is what the airlines do” – understandable, because they invented it – but that’s not the only way to do it. Pricing for entertainment events is different and those differences need to be recognised in adapting appropriate methods.

There’s also a concern that dynamic pricing is somehow unethical. Let’s clear one thing up first – this sector has been

doing one form of dynamic pricing for years. It’s called discounting. For years, a loyal customer has been able to purchase a full price ticket way in advance of an event, only to find someone sitting next to them who has turned up at the last minute and paid half price. Is this really more ethically acceptable than if that late booker turns up and pays 50% extra, rather than 50% less?

Actually, we have all been doing revenue management for years which includes many different tactics: standby is revenue management, advance booking discounts is revenue management - the opportunity comes in managing it better.Can we use the airline model in the entertainment sector?

Sometimes concerns about the appropriateness of dynamic pricing derive from the association with budget airlines. This is, in fact, a completely different model, based on being low cost. It’s a stripped back service, reducing value in order to reduce price – which I would argue is not right for the arts and entertainment sector. While budget airlines do use dynamic pricing, it’s the full-service carriers that operate the most sophisticated revenue management strategies, with many more variables at their disposal; more like the arts sector. Sometimes, airline-like models can work (such as at Belfast’s MAC arts centre – see case study) but what is most important is to understand the principles of revenue management and apply them in the relevant way for your particular business.

The key difference between airfares and arts pricing relates to value or in economists’ terms ‘utility’. We all go through a (largely subconscious) process all the time, weighing up prices against the value we expect to get back. For an airline that value is fairly objective; a flight from Sydney to Melbourne is always much the same. You are buying the right to sit in a seat for a specific journey and that seat has objective qualities that you can choose to pay more or less for, such as leg room, food and the like. Of course, some of those seat qualities also apply in the arts, but I’d argue that at the core, most of the satisfaction sought from an

38 Australasian Leisure Management November/December 2013

arts ticket purchase is subjective. A flight is a means to an end. A theatre visit is the end in itself. So, the subconscious calculation of price against value is entirely different. This is the main reason why a totally automated, algorithm-based approach to pricing is not appropriate, for if customers are making decisions based on subjective, human impulses, it often requires a human being to fully understand them.Dynamic pricing and revenue management – what’s the difference?Dynamic pricing is just one element of revenue management. The origins of revenue management lie with the airlines back in the 1970s, and its key objective was to address the perishability of the product – the fact that when the plane takes off you can’t sell an empty seat. The same applies to hotels and to theatre seats.

Robert Cross, Chairman and Chief Executive of Revenue Analytics (widely recognised as the foremost expert in the field of revenue management), defines it as “revenue management ensures that companies will sell the right product to the right customer at the right time for the right price.”

This includes reducing prices to stimulate demand when sales are low, as well as increasing prices to exploit high demand. While ’yield management‘ focuses just on maximising income, revenue management focuses on optimising yield and volume of sales. Revenue management is the umbrella-term, covering a wide range of tactics, including inventory control (changing the number of seats, performances or flights available), variable pricing by

performance (higher prices for Saturday performances), variable discounting, subscription design, advance booking discounts, standby, premium upgrades as well as auctions and the standard airline tactic of overbooking.

Dynamic pricing involves the changing of pricing of the same inventory over time (increasing or decreasing prices for the same ticket over time) in response to changing patterns of consumer demand.When should dynamic pricing be used?Dynamic pricing can be particularly useful:•When demand is difficult to forecast•Or when brand or positioning demands consistent pricing across a range of performances, but demand says otherwise•To help drive booking earlier (and reward customers who are willing to commit)•As a way to create an enhanced benefit for subscribers or members, where they are not impacted by dynamic pricing increases.

But there are situations where dynamic pricing might not be the best approach:•For an organisation with a high proportion of loyal, frequent customers who all book early.•Where dynamic pricing does not fit with the overall earned income strategy. For example, where pricing is being used to leverage other income streams such as memberships or donations.•Where you already know that demand will be high.

Assuming that your objective is to optimise yield, it is always better to get prices right from the start, rather than

using dynamic pricing to address under-pricing later (unless you have branding reason for starting prices low/uniform). Organisations should certainly be doing everything they can to plan pricing properly, but customers’ willingness to pay can vary so unpredictably that it is not possible to set each price at exactly the right level for each purchaser in advance. Then, dynamic pricing allows you to respond to customer demand.Dynamic Pricing: the time is rightThe time is right for dynamic pricing. Customers understand and accept the practice, barriers to its use are mainly in the mind, and implementation can be relatively easy. In the USA, theatres are making very significant improvements to their box office revenue: Center Theatre Group in Los Angeles took an additional $1.4 million on one show while the Arsht Center in Miami has been exceeding sales goals for one-week shows by more than $150,000 a time. Even smaller theatres, such as Seattle Repertory Theatre, have earned $50,000 in incremental revenue (just the yield over and above original prices) in a year.Tim Baker is Director of international software and consulting firm Baker Richards and Vice President of its US-based sister company The Pricing Institute.www.thepricinginstitute.comwww.baker-richards.com Tim will be addressing the topic of dynamic pricing at the Ticketing Professionals Conference in Brisbane in February.www.ticketingprofessionals.com.au

Adrienne Arsht Center for the Performing Arts, Miami

Sleeping Beauty at Ahmanson Theatre, Center Theatre Group in Los Angeles

Australasian Leisure Management November/December 2013 39

Baker Richards was to create a pricing strategy for The MAC, which opened in Belfast, Northern Ireland in April 2012.

One of Europe’s most significant purpose-built arts venues, MAC is the flagship cultural and arts

building in the heart of Belfast and offers a world-class program of events and exhibitions including experimental new works. In the 18 months since opening, over 450,000 people have visited the MAC.

After intensive work to gauge feasibility, and modelling to test the income potential, the decision was made to adopt a radical approach to the pricing strategy. The aim of the strategy is to offer a wide range of prices, while using a combination of revenue management tactics to ensure a balance between accessibility, volume of sales and income.

The strategy has three key components which are applied consistently across almost all areas of programming:•Standard Tickets are available at five prices, from £12-£22 ($21-$38), for all performances. All tickets start at £12 ($21) and then increase with demand. As sales hit planned thresholds, the price moves up a band. Flexibility is achieved by varying the rate at which prices increase (i.e. moving the thresholds), so that for a performance that is forecast to sell very strongly, the highest price will be reached before the auditorium is half full, whereas for more difficult performances, more than half of the auditorium could remain at the bottom prices. Seats are sold as ’best available’, except for:•Premium Tickets, fixed at £22 ($38) for the best seats, which are held off sale in variable allocations. Premium tickets also offer added value in the form of being able to reserve tables for refreshments.•Take a Chance tickets, priced at £9.50 ($16), which are sold without a specified seat and then allocated on the day of performance. Allocations are varied and adjusted in line with demand, so that very few will be sold for more popular performances, but they can be used to offer a low accessible price when demand is less strong.

A further aim of the strategy was that pricing should be simple to explain in relatively few words. The ability of the audience to comprehend the principles of the strategy is fundamental to its success; people won’t book early if they don’t understand that that’s what they need to do to get a low price. In practice most people are used to how pricing works for airlines and so in this case making direct reference to that model helped make it easy for customers to understand.

A full evaluation of the strategy is due to take place now that a suitable body of data is available, but preliminary assessments show the strategy works well in ensuring that accessible prices are always available and maximising income when demand is strong.

A Revenue Management Strategy for

The MAC

CASE STUDY:

40 Australasian Leisure Management November/December 2013

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